Yale announced this week that its endowment grew to $10.7 billion in the last year fiscal year, rising six percent from last year’s record-high of $10.1 billion. Considering that the S&P 500, a measure of the overall state of the stock market, fell approximately 10 percent during that same period, that kind of return is extraordinary.
It is, moreover, a clear measure of the investment office’s enduring prudence. The importance of the endowment to Yale’s operations — it accounts for 25 percent of the operating budget — forces investment officers to hold strictly to the age-old adage of maximizing return and, in particular, minimizing risk. A large holding in a risky investment can spoil an operating budget. Despite tanking markets, that has not happened.
A telling comparison places the University’s endowment return side-by-side with that of its peer institutions. By that measure, Yale’s endowment has performed nobly. Harvard’s endowment — the largest in the nation — fell by 2.7 percent during the same period and saw its overall value drop from $19.1 to $18.3 billion. The median institutional fund, as measured by the Trust Universe Comparison Service, fell 5.7 percent.
Yale’s investment team — lead by Chief Investment Officer David Swensen — has produced admirable returns year after year through a different approach to portfolio management, moving away from the traditional emphasis on domestic equity and bonds and diversifying towards other assets, such as private equity, real estate and absolute return. The strength of Yale’s innovative approach is especially highlighted during difficult times for world stock markets.